French bank BNP Paribas SA has created China's first wholly foreign-owned bank, buying its Chinese partner's share in a Shanghai institution.
The step comes as China starts to open its banking industry to foreign competition -- a change that is expected to lead to wrenching challenges for Chinese banks.
The International Bank of Paris and Shanghai was set up in 1992 as a joint venture between BNP Paribas and the state-owned Industrial and Commercial Bank of China. In 1997, it became one of the first foreign-financed banks allowed to handle the Chinese currency, the yuan.
ICBC, China's biggest commercial bank, said Thursday it had completed the transfer of its shares in the Shanghai bank to BNP Paribas. The banks did not disclose the price paid for ICBC's stake in the bank, which has been renamed BNP Paribas (China) Ltd.
Chinese leaders hope such foreign involvement will help to modernize a state-owned banking industry that lags decades behind its foreign competitors.
China has promised as part of commitments to the WTO that by 2006, foreign banks will receive the same treatment as local institutions.
"With the opening of new markets following China's entry into the WTO, BNP Paribas sees tremendous opportunities for expanding the scope of business and strengthening its presence in China by way of establishing a wholly owned bank," Michel Pebereau, chairman of BNP Paribas Group, said in a statement.
BNP Paribas opened its first office in China in Shanghai in 1860 and was the first European bank to return when the communist government allowed foreign investment in the late 1970s.
BNP Paribas said it has raised the Shanghai bank's registered capital from 272 million yuan (US$32.8 million) to 555 million yuan (US$69 million) and said it would expand the range of services.
The bank, which has been handling corporate business, will handle foreign currency business for Chinese and foreign customers, as well as services in Chinese currency for some foreign customers, according to BNP Paribas. It said it also plans to expand into trading Chinese bonds and other financial services.
Meanwhile, China is planning to largely eliminate requirements for foreign companies to seek approval of investments, a senior official on Thursday was quoted as saying.
The change is part of a regulatory overhaul that would take place next year if approved by China's cabinet, the Financial Times quoted Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission, as saying in an interview.
"The basic direction of the proposal is that companies will no longer have to go through government review and approval for investments that do not involve government money," Zhang was quoted as telling the London-based newspaper.
"Where the enterprise uses its own money and the [project] is not considered major or in a sector subject to state restrictions, then all they have to do is register, say `I want to invest,' and that's enough."
Until now, foreign companies have had to wait months or years for approval of investment in factories and other facilities.